Monopolists in Caves

Citizens of the civilised world are more threatened now than at any time since the Second World War – more even than in the Cold War. In the fight against communism, reason and self-preservation constrained even the most fanatical hater of liberal democracy. Now we confront those who love death and operate beyond the bounds of reason.

~ Gerard Baker, Freedom From Fear is a Worthy Goal, Financial Times, March 17, 2004

Unchanged minds and shattered lives

One thing that the Madrid bombs did not do is to change minds. Supporters of the War on Terror appear to have become, if anything, even more determined to have their war. Opponents are not surprised. Political debate is a dialogue of the deaf.

This is a pity, because international events are moving ahead at flank speed well ahead of the dialogue tossing fitfully in their wake. What dialogue there is is conducted in a format so formal and so stilted as to be not just useless, but downright dangerous. For instance, the economics of the War on Terror are not discussed openly outside the context of cash flow. "The occupation of Iraq has cost X and will cost X+Y in another year" is about as deep as it goes. The headline barometer of that spending, the US current account deficit, is the subject of analysis only within the confines of formal economic theory. This places the debate comfortably outsides the boundaries of the useful, limiting it to detached and clinical discussion about its "sustainability" with the pro war faction assuring us tat it is, indeed, sustainable, and the antiwar faction saying no, it its not. Neither appears prepared to discuss what would be necessary to make it sustainable which is a very scary discussion indeed. The former avoid the question because it would expose their essentially undemocratic and totalitarian intent, while the latter do not because it is safer to avoid that discussion.


Thus the barrage of criticism levelled at the Spanish electorate in the Anglo-Saxon press focuses on the "message" that the defeat of the Aznar government send to the "terrorists." The facts do no intrude on this fairy tale; facts such as the 90% plus of the Spanish electorate who opposed Aznar's decision to send troops to Iraq. The idea that he would win re-election was always preposterous given such strong public opposition, whatever polls may be quoted purporting to prove otherwise. The question that should be on everyone's lips is left unasked and therefore unanswered as the repetitive chanting of "Al-Qa'ida did it" drowning out anyone attempting to answer it.

The facts that the explosives were placed under the cars on the Spanish trains and that there were ten of them raise several doubts about this version of events. Charges set in such a fashion were not in idly discarded rucksacks. They required placement and wiring. This takes time. That there were so many and were detonated in such a coordinated manner speaks of technical sophistication, numbers of participants, and the time to place them. This and the early morning timing of the attack imply that the charges were placed while the trains were still in depot, which raises further questions, the most uncomfortable of which is, was there collusion? The idea that a Moroccan catering worker is supposed to have accomplished all this, still less that a group of them did so, is one of the longest of long shot hypotheses. This is a quality that the Madrid bombings share with every i ncident attributed to Al-Qa'ida since the bombings of the US embassies in Africa as Bill Clinton was facing impeachment. To believe the official version is to believe by necessity two mutually incompatible ideas: that Al-Qa'ida is globally, financially and technically sophisticated and is, on the other hand, local and independent of central control. When objections are faised to the former description, the latter is used to outflank the objections. When the latter is challenged, the reverse is true, in a circular argument that goes nowhere but neatly sidesteps disclosure and derails debate. The idea that President Clinton's "Terrorists in the Hindu Kush" or President Bush's "Evildoers in Caves" could mount serial operations like this is absurd. Not even the Irish Republican Army managed anything like this in twenty years, and as the courts in Britain are slowly divulging, even the IRA was thoroughly penetrated by the security s ervices, raising the most interesting question of all.

Dirty doormats

The insolence of doormats like Gerard Baker at the Financial Times or David Brooks at the New York Times lecturing the Spanish on democracy is risible. To call Al-Qa'ida the most dangerous menace to confront mankind since the Second World War is so lacking in proportion, historical context, or even rationality as to give the impression that one has entered another's psychotic episode. Repetition replaces reason as the arbiter of truth. If repeated frequently enough even the basest slander and falsehood will gain respectability.

The War Party's loudly trumpeted concern for democracy does not evidently extend to serious public examination of cause and effect, aims or finance. The Bush administration's disgraceful and determined efforts to short circuit any meaningful public enquiry into the events of September 2001 is one manifestation of this. Its refusal to seriously investigate the collapse of accounting and financial control in the government is another. The military budget is out of control, and so is the military. The very people and agencies tasked with protecting the American nation have been rewarded for their failure to do so by using the federal credit to finance a massive arms spending spree and global deployment of forces, while at the same time stripping federal medical and retirement benefits, back door regressive tax hikes in the guise of user fees, and foreign job outsou rcing. The only parallel that we have been able to find that adequately conveys the gravity of the collapse in constitutional government and military discipline is perhaps Japan in the decades before the Second World War. Her Manchurian Army became a power unto itself in Manchuria, where it became accustomed to financing itself outside the statutory and customary channels in Tokyo, and over whom the government in Tokyo lost control. The synergy that arose thanks to its control of armed force, finance and organised crime became a model for the systematic looting and asset stripping of territories it overran, each "victory" creating the excuse for the next campaign.

The incredible self-financing war machine

Similarly in the United States today the military and security complex has been ceded de facto the ability to dictate its budgets. The conflict of interest that this implies is profound but simple, and understood by gangsters everywhere. Protection is a racket, and so is the Pentagon. This is one reason why we are doubtful about the ability of the US to alter its course irrespective of the outcome of the presidential election this year. There is simply too powerful and too broad a coalition of interests to do otherwise. The Democratic Party's nomination of John Kerry should disabuse even the most ardent of wishful thinkers. Kerry's nomination defines the ground on which the party will fight the election, which will be national security. The groundswell of popular revulsion inspired by the 2000 election fraud and the War on Terror was threatening to derail the pr ogram. With Kerry's nomination there is no serious reason to expect the basic policies of unrestricted war and unrestricted deficit finance to change. There will be no move to throw the rascals out; only a choice of one of two rascals.

This still leaves the matter of the nation's finances unresolved. We have argued for some time that the priority of the Treasury and the Federal Reserve would necessarily be to finance the Federal deficit, which is to say the war. That precludes serious action to deal with the current account deficit for the time being, which in turn means that a meaningful rise in interest rates any time soon to do so is unlikely. By soon we mean this year, and by meaningful rise we mean a rise in the Fed Funds rate to more than 4%.

If at first you can't raise interest rates…

This implies that the Fed is going to rely on prices to do the job of suppressing demand for them. We don't usually reprint letters but in this instance we are making an exception. this was written by a friend of ours, a job foreman running a major electrical subcontract on a large construction site at the University of Michigan:

Dear SRA,

We knew it was coming and now it’s here. Our gas is around two dollars a gallon and yesterday I ordered 25,000 feet of steel conduit, a drop in the bucket for this job, and was told that Detroit suppliers are out of conduit and hopefully they could fill my order next week. I was warned by two of our three major suppliers that steel would be rationed by summertime. Prices for the conduit have jumped one hundred percent in less than ninety days. What this means is that if I cannot get this one order within a week the company would have to lay off some employees. We go through a hundred thousand feet of conduit easily in two weeks with 75 men. My question to the suppliers is “where is the steel?” The answer I get is “Between China and rebuilding of Iraq” Copper is also in short supply and the price of scrap copper that we take to the scrap yards is over a dollar a p ound. What’s next? Will we bring construction in this country to a halt? Will U of M not have their Bio Science Research Building done by 2006? Ann Arbor’s Local Electrical Union is one of the small pockets, if not the only pocket of work right now in the U.S. We have over a thousand men and women from out of state signing up to go to work here without a chance in a thousand of getting a job as our own people are not employed.


Serious bottlenecks in strategic commodities are upon us, and the shipping industry cannot keep up with demand. Bottlenecks are bad enough, but the real crunch is coming in energy prices. As the charts accompanying this essay show, the price of every tradable form of fuel is skyrocketing. And the downstream impact of this is already being felt not just in the obvious forms of higher electricity prices, higher gasoline prices, and higher heating bills, but also in higher food prices. Food in the late industrial age is, after all, just reprocessed petroleum.

Evildoers in caves did not do this. Given that the world monetary system is a dollar monopoly, and that control of that monopoly has been ceded to a handful of financial institutions, given further that those institutions are the biggest financial contributors to the US political process, it is hard to avoid the obvious conclusion. One of the problems with having a monopoly on power is that when something goes wrong with that power, it is not very credible to blame it on someone else.

It is going to be a long war, if for no other reason than that we have been led into it by those who indeed are operating beyond the bounds of reason.

March 24, 2004